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The Demand for Crop Insurance: How Important are the Subsidies?

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  • O'Donoghue, Erik J.

Abstract

In 1994, some 56 years after initial authorization, the Federal crop insurance program remained characterized by low enrollment levels. Many argued for increased coverage and subsequent major pieces of legislation in 1994, and 2000 expanded the program and increased premium subsidies. Enrollment jumped, transforming the Federal crop insurance program from a minor program into one of the major pillars of support for US crop farmers, covering over 200 million acres by 1995. The quant ity of crop insurance demanded has often been ascribed to the levels of subsidies offered to producers. How important are the subsidies, and what might happen to enrollment if support for subsidies were to change? This draft shows that between 1997 and 2 002, premium subsidies appeared to induce farmers to enroll more land, but that the effect on coverage levels appears more pronounced. At the national level, it appears likely that changes in the price of crop insurance did little to alter the demand for insurance as subsidy changes did not appear to change the demand for crop insurance uniformly across either crops or locations

Suggested Citation

  • O'Donoghue, Erik J., 2013. "The Demand for Crop Insurance: How Important are the Subsidies?," 2013 AAEA: Crop Insurance and the Farm Bill Symposium, October 8-9, Louisville, KY 157282, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaeaci:157282
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    1. Vincent H. Smith & Joseph W. Glauber, 2012. "Agricultural Insurance in Developed Countries: Where Have We Been and Where Are We Going?," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(3), pages 363-390.
    2. Bruce A. Babcock & Chad E. Hart, 2005. "Influence of the Premium Subsidy on Farmers' Crop Insurance Coverage Decisions," Center for Agricultural and Rural Development (CARD) Publications 05-wp393, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    3. Barry K. Goodwin & Monte L. Vandeveer & John L. Deal, 2004. "An Empirical Analysis of Acreage Effects of Participation in the Federal Crop Insurance Program," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(4), pages 1058-1077.
    4. Keith H. Coble & Thomas O. Knight & Rulon D. Pope & Jeffery R. Williams, 1996. "Modeling Farm-Level Crop Insurance Demand with Panel Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 439-447.
    5. Vincent H. Smith & Joseph W. Glauber, 2012. "Agricultural Insurance in Developed Countries: Where Have We Been and Where Are We Going?," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(3), pages 363-390.
    6. Vincent H. Smith & Alan E. Baquet, 1996. "The Demand for Multiple Peril Crop Insurance: Evidence from Montana Wheat Farms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 189-201.
    7. Barry K. Goodwin, 1993. "An Empirical Analysis of the Demand for Multiple Peril Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(2), pages 425-434.
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    Keywords

    Agricultural and Food Policy; Risk and Uncertainty;

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